Scripps Holds Its Own

6/20/2008 8:00 PM Eastern

By: Mike Farrell

With just under a full week of trading under its belt on the when-issued market, Scripps Networks Interactive appeared to be holding its own, maintaining a share price in the $43-per-share range as it moves closer to being a separate publicly owned company.

E.W. Scripps is slated to complete its long-anticipated split of its cable-television content assets (Scripps Networks) and its newspaper and TV-station unit (E.W. Scripps) on July 1. The stocks of both companies began trading on the when-issued market of the New York Stock Exchange on June 12.

Scripps Networks, which comprises cable networks Food Network, HGTV, DIY, Great American Country and Fine Living, was expected to be the stronger trader of the two stocks and lived up to that promise. Shares of SNI ranged from a low of $40.99 per share on June 12 to a high of $43.34 per share on June 13. E.W. Scripps, which includes the company's newspaper and television-station assets, ranged from $3 to $4 per share.

Scripps has estimated that it expects SNI to have annual revenue of more than $1.4 billion. E.W. Scripps has projected its annual revenue would be about $1.1 billion.

Once the split is complete, Scripps plans a three-for-one reverse split of the E.W. Scripps stock on July 16, which should increase its price. Trading is normally difficult for sub-$3-per-share stocks — many institutional investors refuse to buy stocks priced that low. With the reverse split, E.W. Scripps shares should be priced well above the $3 per share threshold.

Already, some analysts are revising their targets on E.W. Scripps. Last Monday Goldman Sachs analyst Peter Appert lowered his rating on the stock to “neutral” from “buy,” but expected the newspaper unit to trade in the $7 to $8 per share range. Appert believes SNI will trade between $39 and $42 per share.

“The potential pressure on 'new' Scripps will likely be exacerbated as growth investors (the primary current holders of Scripps shares) seek to liquidate holdings in the slow-growth publishing/broadcasting company,” Appert said in his report.

When-issued shares can be bought or sold like ordinary securities, except that transactions do not settle until the stock is formally issued. The attraction: Trading in when-issued shares usually requires a small down payment of about 25% of the value of the shares and no margin or loan debt is needed for the balance until the settlement date, which can be weeks in the future.

And in some cases, the when-issued market can serve as a gauge to predict at what price the shares will ultimately trade.

For example, before splitting into two separate companies in January 2006 — Viacom and CBS Corp. — Viacom stock ranged from $40 to $45 per share in the when-issued market. When the new Viacom began trading on the New York Stock Exchange on Jan. 3, 2006, the stock opened at $40 per share.

But it also could go the other way. Liberty Capital tracking stock traded in the range of $70 to $73 per share in the when-issued market before it began trading officially at $80 per share.